The US president, George Bush, today dismissed reports he was planning a military attack on Iran as "wild speculation".

In an article in the New Yorker magazine, the investigative journalist Seymour Hersh reported that the US has considered using strategic nuclear strikes against Iran's underground bunkers.

The extensively-sourced article has prompted widespread alarm and a belligerent response from Tehran.

Quoting senior intelligence officials, Hersh said that Mr Bush and his aides refer to the Iranian president, Mahmoud Ahmadinejad, as a potential Adolf Hitler.

Mr Bush did not respond directly to Hersh's article but said: "What you're reading is just wild speculation."

Tehran said reports of a nuclear strike were part of Washington's psychological warfare campaign.

Mr Bush and other administration officials have said repeatedly that the military option is on the table, and White House officials acknowledge "normal" military planning is under way.

Mr Bush said that he was correct to include Iran in the "axis of evil" with Iraq and North Korea and that he was glad to see other countries taking the threat from Iran seriously, too.

"I got out a little early on the issue by saying axis of evil," Mr Bush said. "But I meant it. I saw it as a problem. And now many others have come to the conclusion that the Iranians should not have a nuclear weapon."

Mr Ahmadinejad told Iranians not to be frightened by western threats, and said that his country would not be dissuaded in its drive for nuclear energy.

"Unfortunately today some bullying powers are unable to give up their bullying nature. The future will prove that our path was the right way," he told thousands of people gathered in Mashad in north-eastern Iran.

"Those who are seeking to draw broad conclusions based on normal military contingency planning are misinformed or not knowledgeable about the administration's thinking," he said.

The UN security council has demanded Iran suspend its uranium enrichment programme, but Tehran has so far refused, saying the small-scale project was strictly for research and not for the development of nuclear weapons.

The European Union's foreign policy chief, Javier Solana, recommended today that the EU consider sanctions against Iran, including a visa ban on some officials because of Iran's rejection of the UN demand.

Mr Solana ruled out the use of force to resolve the dispute, saying "any military action is definitely out of the question for us". But the EU should consider formally suspending negotiations on a free trade pact and pursue funding of pro-reform broadcasts into Iran, Mr Solana said in a report presented to EU foreign ministers.